I have always wondered what it might be like to be an insider at Wall Street, to be able to know secrets before others, to have a head start in trends and events. I am not talking about “insider” information, I am speaking about the “old boys” club. A recent article in Bloomberg Business gave all of us an insight into how the stock market is moved and held up and why so many big companies are profiting and at the same time so much money from smaller investors is fleeing.
This is possible the scariest thing I have ever read about the securities industry. If this is true, and I believe it to be, then it sets up our annuity industry for a long time.
Here is the shocker: the single biggest reason the stock market has been artificially supported is because of corporate stock buy backs.
Why wouldn’t a company buy back its stock when interest rates are so low, almost any company in a growth cycle could issue bonds at extremely low interest, and use the money to re-purchase their own stock. Does it get any simpler?
Here is the question of the day. What happens when this artificial support weakens or stops all together? A giant BEAR market is what we will have. The enclosed article from the most respected source I use (Bloomberg) says just that. If we enter a Bear cycle and stay there, Fixed Indexed Annuities (FIA) will be the darling of the financial world.
Here are two power statements from the Bloomberg article.
- Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007.
- The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.
Here is the article and the link, if you read it carefully you will see that approximately $590 billion is entering the market in 2016 strictly from large companies buying back their own stock. At the same time, it is estimated that $60 billion from small investors will be exiting in 2016.
There’s Only One Buyer Keeping S&P 500’s Bull Market Alive
March 14, 2016 • Bloomberg News